THE DISTILLERY: Gyngell greatness

The commentariat admires David Gyngell's and Nine's success, and gives the ASX's new disclosure rules the thumbs up.

Coincidence links two of Australia’s premier business commentators on the Nine Entertainment deal that will help solidify the already enviable reputation of chief executive David Gyngell. The Nine boss has some new owners, a new outlook and a new kid, mazal tov! Also this morning, the ASX’s draft rules on continuous disclosure get a thorough examination and receive a positive verdict.

Firstly, Fairfax’s Malcolm Maiden writes that things certainly went "down to the wire” with the Nine Entertainment negotiations.

"It's the nature of tough debt negotiations such as these that opposing sides begin with ambit claims, and work slowly towards a compromise, and that has happened again with Nine. Goldman began by arguing that Nine was worth enough to underwrite a debt-for-equity swap that handed the mezzanine holders a 30 per cent stake in a recapitalised Nine that took on $1.5 billion of debt. Oaktree and Apollo in their roles as biggest senior debt holders and negotiators argued that Nine was not worth enough to hand the mezzanine holders any equity at all. The compromise sees the mezzanine lenders get 4.5 per cent of an ungeared company, worth about $100 million. They have received interest payments of about $130 million on their original debt exposure of about $700 million, and must now hope that Nine will eventually sell for enough to cover the balance.”

Maiden happens to finish his piece with the phrase "common sense prevailed,” the exact same expression used at the beginning of Stephen Bartholomeusz’s piece here at Business Spectator on the same topic, which also included the phrase "went down to the wire”.

The Distillery isn’t alleging any plagiarism here – if you’re going to copy something, try a compelling argument rather than a widely known phrase. This is simply a case of great minds thinking alike.

"The senior lenders, led by US hedge funds Oaktree Capital and Apollo Global Management, were insistent that their last and final offer was 4 per cent of the equity and no warrants. If one put the warrants to one side on the basis that they might never have had any value, and took into account the fact that Goldman was basing its claim on a Nine balance sheet that contained about $1 billion of debt whereas the hedge funds were talking about a debt-free balance sheet, the difference between the two sides – and whether the outcome was a recapitalisation or an administration – was probably less than $10 million, although that’s a calculation complicated by the fact that the parties had different views on Nine’s equity value. The solution thrashed out today is, in the circumstances, an elegant one. Instead of wrangling about the base for a calculation of value – whether the starting point should be Goldman’s equity value of about $2.65 billion with $1 billion of debt or the hedge funds’ $2.34 billion and a debt-free balance sheet – and rather than try to assign some value to warrants the parties came up with a simple solution.”

As we all know, in the midst of all this, Nine chief executive David Gyngell and his wife, Nine presenter Leila McKinnon, welcomed the birth of their first child. The Australian’s Richard Gluyas describes the shift in fortunes for the Nine executive.

"Instead of a zombie private equity owner in CVC Asia Pacific, Gyngell has committed, long-term proprietors. Instead of an unmanageable, $3.3 billion debt load, Nine will be magically debt-free. And instead of mediating endless brawls between fractious lenders, with the clock ticking down to Nine's refinancing deadline in February, Gyngell can dote on one Edmund ‘Ted’ McKinnon Gyngell, born at 2am on Wednesday. Oh, and the Nine chief might also find some time to run a free-to-air television network.”

Mark these words; this yarn will greatly help build a kind of mythology around Gyngell in time.

On most other mornings, Fairfax columnist Elizabeth Knight would have been the lead here with her piece on the new draft of ASX rules to address the High Court’s ruling on continuous disclosure in relation to Fortescue’s Andrew Forrest.

"A new draft of ASX rules governing disclosure obligations was released yesterday to address this issue. While the draft will not necessarily become final, it is suggesting companies are under no obligation to let the investment community know if the board has received an offer. On one level this makes sense because plenty of tyre-kicking goes on. David Jones and more recently Macmahon are two cases in point. The former was a highly publicised debacle involving a small-time property developer with an offer that was never going to be financed. DJs was criticised for not releasing this to the market. Macmahon's involved a fraudulent offer. These are extreme cases where common sense should prevail and, as the author of ASX's review of its listing rules says, the bottom line is common sense cannot be legislated.”

This is a terrific piece with more recent, pertinent examples. Well worth reading.

The Australian Financial Review’s Chanticleer columnist Tony Boyd also has a solid article on the ASX draft rules, arguing that the practice of leaking information to the press is likely to continue.

"Experienced takeover players, corporate lawyers, investment bankers, investor relations chiefs and PR consultants know that a media leak is the most convenient method of forcing the release of news of confidential takeover talks. It is a widely used tactic in the cut-throat world of mergers and acquisitions despite the fact that just about every deal includes confidentiality agreements. It is primarily used by those attacking an unsuspecting target. But sometimes it can be used by target companies looking to boost their share price for reasons that might not be obvious. There are now more venues than ever before for leaking confidential information.”

Meanwhile, in media news Fairfax’s Michael West reports on how support for reform at News Corp, the parent company of this website, ultimately petered out by the annual general meeting yesterday. The 40 per cent surge in the share price this year hasn’t helped campaigners for changes to News Corp’s corporate governance.

But The Australian Financial Review’s Neil Chenoweth writes that the Murdoch family is relying ever more heavily on the support of major News shareholder and Saudi Prince Alwaleed bin Talal.

"Counting Alwaleed’s support, 66 per cent of News shareholders outside the Murdoch family want a new independent chairman and 62.5 per cent want to drop the dual voting structure that gives the Murdochs iron control with only 13.5 per cent of total stock.”

Business Spectator’s Stephen Bartholomeusz makes the point that Ten Network was prudent to raise capital earlier this year, when some believed that the expected funds from the sale of EYE Corp, which appears to have fallen through, would have been enough.

Turning now to some of the world’s true giants, The Australian Financial Review’s Matthew Stevens passes on the warning from BHP Billiton chief executive Marius Kloppers about the heightened need for Australia to increase productivity with lower resources prices thanks to China’s lower growth levels.

The Australian Financial Review’s Karen Maley writes that Citibank’s now former chief executive Vikram Pandit racked up three strikes this year that the bank "could hardly have been pleased with”.

Elsewhere, The Australian’s economics editor David Uren argues that the International Monetary Fund’s influence over the way countries manage their debt burdens amid sluggish economic conditions is fading.

The Australian’s Asia Pacific editor Rowan Callick writes that the mood at China’s annual Canton Fair trade show, the world’s largest, was quite subdued thanks to a lower number of buyers.

The Australian’s John Durie explores the global efforts to curb high frequency trading as the 25th anniversary of the 1987 anniversary approaches.

And finally, The Australian’s Robin Bromby writes that the retreat in gold prices this week is not a sign of a large correction. Unlike Monty Python’s parrot, writes Bromby, the gold price is not dead, but sleeping.

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